Daniel G. Jacobs
“The Reedy River spill was a bit of a wake-up call for us, the board of directors,” says David L. Lemmon, president and CEO of the company at the time. “I had been through a similar transition at Amoco. The old oil (industry) mentality was, ‘I’ll compromise on the courthouse steps.’ We changed that mentality at Amoco in the ’70s and ’80s, but it hadn’t changed at Colonial. They just could not get ahead of the curve.”
Lemmon took the president and CEO spots in 1997 at a time when the company, which every day delivers an average of 95 million gallons of gasoline, kerosene, home heating oil and diesel fuel to shipper terminals in 12 states and the District of Columbia, was still reeling from the impact of the spill.
“We were under investigation by the main Justice Department of the United States in Washington, D.C., for seven years five of them on my tenure,” Lemmon says. “When you have FBI agents snooping around, it creates a high sense of urgency.”
It was that sense of urgency Lemmon wanted the rest of his company to share.
“When I came here, I really had to make an impact that Colonial had to change,” Lemmon says. “It operates in the public venue, across private property. We’re a bit of a franchisee of the public, and if we don’t change, we’ll go out of business.
“What I was trying to do initially was create a sense of urgency that we had to stop spills. Zero was the only thing acceptable. There was a lot of belief that was not doable here at Colonial. That was the mountain. I made safety my mantra, my call to action.”
That mantra began with that sense of urgency. But to turn around Colonial Pipeline, which Lemmon says may have been just one spill away from federalization, he had to change the culture. To do that, the new CEO also had to make wholesale changes in talent and develop the strategy and vision that would take the company forward.
Lemmon knew a dangerous attitude persisted at Colonial Pipeline. He knew the old oil mentality needed to change, and that was unlikely to happen just because a new CEO insisted it should.
“There were some attitudes here that said, ‘We could wait out this new CEO, just like we waited out the other one,’” Lemmon says.
To develop the sense of urgency he felt the company needed, Lemmon made drastic changes throughout the organization. And he began near the top.
“I needed to get some new talent in here,” he says. “I knew before I came that I needed a new chief operating officer. My first task was to go out and look for a COO that had been through a similar transition that I had at Amoco. I called (the person in that position) my mountain mover, somebody who could really employ and drive, even at the risk of leaving a little debris along the road. (He could) drive a new safety, accountability and operation excellence policy.”
Lemmon hired Bill Scott, a 24-year veteran of Conoco, as the first step in changing the culture of the company. But that was only the beginning. Early on, Lemmon recognized that most of the employees had become complacent. He wanted to change the entitlement attitude that pervaded the company, and to do that he need a human resources expert.
“I quickly realized that the previous administration had blown away the people processes,” he says. “I went from CEO to COO, until I got that replaced. Then I became vice president of human resources for a few months. I quickly could see that having a former operations manager in the human resources role would have to change.”
He found what he needed in Rhonda Brandon, who helped him map out a strategy for changing the culture through processes and recruiting.
For example, at one time, when a position opened up, only internal candidates were considered. With Brandon’s help, Lemmon changed the policy so that outside candidates could be considered.
“That brought a lot of acrimony and a lot of frustration in the organization,” Lemmon says. “The first year, when we had an opening, we would look at our internal candidates, but we would go outside as well. If we could find a better candidate outside, we’d bring them in. It took a couple of years to get over that. Later in the ’98-’99 timeframe, (I realized) it was too slow. I had to wholesale go in and redesign departments.”
Thus began a restructuring of nearly every department in the company.
“Engineering was the first department I went through, and it really resounded,” he says.
Lemmon fired half of the 42 people in that department.
“Then I went through my financial department and a whole series of other departments. They were not as broken and did not need to go to the same level. When I got to the environmental department, I didn’t let anybody go. They got the message.
“Waiting for one opening was too slow to change the culture and to get the talent that I needed. The talent here had not developed. They were good people; they just hadn’t developed because they were so staid in their approach to business. I’m not sure I went fast enough in that regard. I wanted to be fair to the people as I went (forward), and I wanted to treat them with dignity, but they had to perform. And if they couldn’t perform, they had to leave.”
Strategy and vision
With the right sense of urgency and the people who could move the company forward in place, Lemmon focused on a plan for the future.
“My third step was developing a strategy and a vision,” Lemmon says. “Frankly, I did it out of sequence. I could not wait for the vision. I wanted to get on with the strategy. I did the strategy first, then turned around and redid my vision and tacked it on the front of it. Traditionally you go the other way.”
“In 1999, I spent nine months developing the 10-year strategy for Colonial. I had a board advisory committee I set up. I involved 50 or 60 people most of the leaders of Colonial. Once you’ve got that strategy, you need to take annual bites of that strategy and you need to financialize those in your budgeting process.
“The first year of my 10-year strategy, I managed as hard as I can to make sure that budget delivers that strategic goal,” Lemmon says. “One of the things I pride myself on is across the years, we’re pretty close almost every year to those strategic targets. They’ve changed a little bit; we’ve had some upsets, and we’ve had some windfalls. If you look at the curve over that (timeframe), it fits pretty closely to that strategy.”
He reviewed progress with the board each December.
“From that budget, I put together corporate goals,” he says. “Corporate goals are a few goals three to five big-ticket goals that I review and ask the board. Those goals, and how we measure up against those goals, determine the incentive compensation bonus for the 25 top managers. It also has the variable pay program we call it win-share. It also ties very closely to how we reward our employees for their overall performance.”
At one time, all employees received the same bonus regardless of performance. That was another thing Lemmon changed.
Once the strategy and vision were developed, he delivered it to the rest of the company.
“(It took) massive communications,” he says. “The previous administration would go on tours of the field, but they’d go look at pipes and tanks and stuff like that. I wanted to go meet people. I told every one of my leadership team members, ‘We’re going to the field. We’re going to sit down and talk with people.’”
But Lemmon didn’t just dictate the strategy. He wanted employees involved in the process.
“I’ve learned, when you go talk to people, if you just tell them what you think, you don’t make near the impact as if you ask them what they think,” he says. “When I go to the field, I go with a blank flip chart. I say, ‘Guys, what do you want to talk about? What’s on your mind? What are your issues?’ And I’ll list them. They’re a little reticent, but pretty soon we’ve got 10 or 12 issues on that sheet of paper that we want to talk about. Then I start down (the list).
“When I get to the bottom of the list, I’ve talked about everything I wanted to talk about, but they think I’ve talked about everything they wanted to talk about. I’ve trained my leadership team to do that, and our employees love it.”
Lemmon says it was a slow process to completely change the culture.
“As late as five or six years into it, I would find managers they hadn’t deceived me, but they hadn’t come clean with me,” he says. “They weren’t backbiting, but they were reticent to change. I’d confront them, and if they couldn’t get on the bus, they had to change or go.”
The goal now is to make sure the company never loses that sense of urgency.
“We’ve asked ourselves that question repeatedly,” Lemmon says. “Are we falling into the very complacency that we were trying to pull out of? We have worked on it hard. We start again with our strategy. We’ve freshened our strategy every other year since we’ve been here. Last year, we completely redid our strategy.
“We took a look at our mission and vision. We’ve tweaked those and tried to put more personal accountability into our overall performance. Every other year, we have a company meeting. We go offsite. We bring in high-powered motivational speakers and we bring in people that critique us. We try to keep this sense of urgency.
“The fact is, we’re only one spill away from being bad guys. Therefore, we’re not going to have them.”
Lemmon is now officially a retiree of the company after eight years of service, although his tenure with new president and CEO Norm J. Szydlowski overlaps for several months.
“I leave this company in good hands, with a good future and with a strategy to grow based on stellar performance,” he says of the $713.7 million company.
And the result of his work is clearly evident.
“Partners will not deal with you; government agencies will not give you rightaway if you’ve got a poor reputation,” Lemmon says. “By changing the reputation and credibility of Colonial in the last three or four years, we’ve now been able to grow. We’ve focused a lot on pipelines extension of pipelines, buying new pipelines going to new markets. We’ve achieved some of those, we’re not near as far along on those as we are in the other. But we must do both - we must keep the oil in the pipe and find new ways to grow.”
HOW TO REACH: Colonial Pipeline Co., (678) 762-2200 or www.colpipe.com
Born: 1955, Boston
Education: Bachelor of arts degree, Harvard College; MBA, University of Virginia, Darden Graduate School of Business
What is the greatest business lesson you’ve ever learned?
Based on the work of Viktor Frankl, the meaning of life is about the chance to make a difference, enjoy the journey and do the right things. The job of a leader is to create the environment where people can find meaning in life at work by doing these three things.
What is the biggest challenge you’ve faced, and how did you overcome it?
Coming to Steak n Shake and discovering that management turnover was 49 percent, crew turnover was 220 percent and sales were declining by 5 percent. Three years later management turnover was 26 percent, crew turnover was 135 percent and sales have (increased an average of more than) 5 percent for three years. [We] made significant progress by leveraging the wisdom of best leaders in the company and sharing the challenges with all associates.
A sale was the best way to infuse the company with the capital to enable it to grow and thrive in a global marketplace. But before the sale of the specialty chemicals manufacturer could be contemplated, McNeeley had to put his house in order.
He immediately focused on three areas: Improving profitability in product lines and manufacturing facilities, refocusing technology efforts to emphasize process improvement over new product development and reducing sales, general and administrative expenses to no more than 10 percent of sales.
“When I became CEO, I had a few specific issues that needed to be dealt with,” McNeeley says. “A couple of them were short-term issues related to the balance sheet, our working capital and our debt situation. All of those things we tackled very aggressively. We tackled our cost situation very aggressively in 2001, 2002 particularly on the (sales, general and administrative), and operating cost side of the business.”
McNeeley began by examining where the company was investing money and identified areas where that money would be more productive. For example, he started focusing on process improvements rather than on new products.
“If you look at the chemical industry over many, many, many, many years, the returns on technical investment in process improvement far exceed the return the industry gets on new product development,” says McNeeley. “So one thing we did was refocus our technical efforts.”
He did that by eliminating a number of small volume, nonprofitable, specialty products and today, the company is No. 1 or No. 2 in nearly every product line it participates in. But that doesn’t mean McNeeley is content.
“Even if you’re No. 1, you have to continue to get better to remain No. 1. And that means get better in terms of your cost position, get better in your ability to supply your customers what they need, when they need it,” he says. “Even if you are No. 1, you can’t stay at the top of the heap if you don’t continually improve.”
For Reilly, that means constantly working to improve processes.
“We’ve embarked on a number of initiatives over the last few years,” McNeeley says. “We’ve deeply embedded the company in a quality-improvement culture. We have deeply embedded the company into an SAP business enterprise-management culture from a financial perspective.”
And the company just recently adopted a Six Sigma approach to business and hopes to achieve results as it moves forward.
“We have not been standing still,” McNeeley says. “We have been implementing processes like these continually over the past five to 10 years.
Sell to grow
With short-term objectives on a more solid footing, McNeeley was ready to tackle the long-term goal of growing the company. But he needed capital to do that.
While there were various financing options available, a sale to a new ownership group was the one McNeeley ultimately chose.
“We could have taken on significantly more debt,” McNeeley says. “We could have done a leverage recap. There were a number of ways we could do what needed to be done from a capital structure standpoint. But the sale of the company was by far the preferred route because it not only did what needed to be done from a capital structure perspective but it also ensured that we would be able to take advantage of that over the longer term as opposed to some of these somewhat more short-term leverage recap-type of approaches.”
The sales process led to a relationship with Arsenal Capital Partners, which acquired a controlling interest in Reilly for $250 million last year.
“The company is at a very interesting time in its development, where new opportunities are coming about, expanding capacity to meet the demands of new generations of customers that are coming about in Asia,” says Barry Siadat, managing director of Arsenal Capital Partners. “The Asian market is growing and becoming a much larger consumer of chemicals and the kinds of industrial products that we manufacture. That’s pretty exciting. Expansion is very important for us.”
The Far East, for example, is a growth market for the company’s vitamin B3 product.
“As large populations such as China and India move from largely rice-based diets to protein-based diets, that means animals, which means animal feed, and that means nutritional additives for those animals,” McNeeley says. “On a global basis, it’s an extremely exciting opportunity.”
With internal operations optimized and an infusion of cash, Reilly Industries is positioned for continued growth.
There are three keys to that growth: People, technology and customer relationships.
“In every company, the bedrock is the people, particularly in a company like Reilly Industries, which has significant technology and intellectual property,” Siadat says. “Investing in people (means) continuing to make sure we have the best talent in the company. Obviously, salary and benefits are paid competitively to attract the best available talent.”
And the company makes sure that once those individuals are in place, they want to stay.
“Training, recruiting and developmental assignments are some of the key strategic ways that Reilly deals with people,” Siadat says.
For example, key employees will be trained on the Six Sigma initiative, and Reilly hired a number of technical and engineering people to support the growth of the business in late 2005. This included adding a leader of information technology to update the company’s digital infrastructure and the hiring of a business leader to grow and develop its increasingly important business in Asia.
McNeeley agrees that getting and keeping talent is key. The company currently has about 700 employees worldwide and will look to increase that number as expansion moves forward. And while many companies struggle to find quality workers either in the United States or Asia, McNeeley doesn’t expect Reilly to face that problem domestically. Because so many high-quality manufacturing jobs have left this country, he expects quality workers to be available when Reilly is ready to add to its work force.
Technology will also play a key role in the company’s growth.
“We are looking to improve cost and performance of our products by developing technologies that support our customer needs and allow us to differentiate ourselves from potential competitors,” McNeeley says.
Areas of emphasis are providing more flexible and robust manufacturing processes to meet the ever-changing demands in the agricultural and pharmaceutical markets; developing specialty blends and formulations that meet specific customer needs, such as in the plastics additive market; and application technology to make its products easier to use by the end customer, such as in the insect repellent market.
The third key to Reilly’s growth is getting closer to the customer.
“We are very close to our customers now, but the face of our customers is changing as new and different customers are coming about, particularly in Asia and Latin America,” says Siadat.
Getting closer to customers means doing a better job of communicating.
“With our major customers, we continually increase both the depth and the frequency of contact,” McNeeley says. “It’s very useful for us to get to know customers at different levels within their organizations, from the very top to their purchasing people to the project management people. Getting to know a customer on a single level, single person basis, while that used to be the way of doing business in the ’70s and ’80s and maybe even the early ’90s, that is no longer an effective way to get to know your customers.”
Individuals at various levels at both Reilly and at the customer company now communicate regularly.
“We develop CEO-to-CEO contacts, as well as business manager to business manager, sales representative to purchasing representative and research chemist to research chemist contacts,” McNeeley says. “This communication is personal, either through telephone contacts or meeting face-to-face. This is very effective to get a complete understanding of our customer’s needs.”
According to Siadat, who has spent years watching the industry, Reilly has always been very good at developing customer relationships.
“Reilly Industries historically has done a very good job of staying close to its key customers and having a partnership relationship with customers in the U.S. and the rest of the European market,” he says. “The challenge now is, as we’re seeing new customers in Asia, we do the same thing over there.
“We have a manufacturing location in China, so we are close to the local customers. We are strengthening our team by hiring new commercial talent and a general manager for Asia, as well as making new investments in manufacturing and technology in China and Asia.”
McNeeley’s efforts have begun to pay off. Reilly’s revenue grew by 17 percent in 2005 and is expected to grow another 20 percent in 2006 to around $450 million. With the product lines pruned, the sale to new ownership complete and the focus on people, technology and customer relationships, McNeeley expects Reilly Industries to continue moving forward.
“The company is well-positioned to grow and prosper, especially under the Arsenal banner, and we are very positive about the future,” McNeeley says.
HOW TO REACH: Reilly Industries, www.reillyind.com or (317) 247-8141
Residence: Pacific Palisades, Calif., with a home in Nantucket, Mass.
Education: Half a semester at State University of New York at Cortland
First job: Newspaper route for “Newsday”
What is the greatest business lesson you’ve learned?
The sun always comes up tomorrow. No matter how challenging or how tough or how bad something might have gone, you get another chance tomorrow.
What is the greatest business challenge you’ve faced, and how did you overcome it?
The greatest business challenge has been Major League Lacrosse. How did I overcome it? I’m still in it. I haven’t overcome it, but bringing in very powerful sports owners and sports operators has legitimized Major League Lacrosse and made the whole challenge a whole lot more palatable.
Whom do you admire most in business and why?
I’m an admirer of anybody who can get an idea off the ground and succeed at any level.
Born: 1950, Phoenix
Education: Bachelor of science degree, law degree, Western State University College of Law
First job: Working in a restaurant, Beefeaters. I was there nine years. I started off as a dishwasher and ended up in management.
Career moves: Previously, senior vice president, international, for Ruby Tuesday Inc. Served as vice president of international operations for Carlson Restaurants’ T.G.I.F., Italiannis, Front Row Sports Grille and Friday’s American Bar. Also worked with Bennigan’s, a division of S&A Restaurants Inc.
What is the greatest business lesson you’ve learned?
Close my mouth and open my ears. That is very important. I tell the people that work with me people try to run businesses through e-mail. That’s impossible. Talk to people.
Pick up the telephone and call. An e-mail should memorialize the phone conversation. When you can listen, you can work your way through anything that’s an issue or you can make the right decisions.
What is the greatest business challenge you’ve faced, and how did you overcome it?
That was the ’97, ’98 Asian financial crisis. That’s right around the time I left T.G.I. Fridays, and went to Ruby Tuesdays. And within 90 days of making the change, the bottom fell out of Asia, which was the primary growth target for us.
We had several business deals that were ready to close and businesses to get started, and we had some ongoing businesses in Taiwan and Hong Kong that just got crushed. They’ve just started coming out of it the last few years.
When you have the greatest growth part of your market disappearing overnight, how do you retune your business model to work under those circumstances and be prepared, so if it ever occurs again it doesn’t impact you again?
Whom do you admire most in business and why?
I absolutely admire Bill Gates. Here’s a man who is on the cutting edge of innovation on technology that, to this day, is still changing the world.
And he’s been resolute in moving forward with his vision no matter who’s come against him.
But something happened along the way, and after an attempt to step away, Scott finds himself back at the helm of the $54 million company that manufactures Bellywashers and Tummy Ticklers. Not familiar with those names? You can bet your pre-teen kids know about these juices packaged in cartoon-themed containers.
“In 1982, I dropped out of college and I built two companies,” says Scott, IN ZONE’s CEO. “One was a moving company called Bulldog Movers. The other was a plastics company called Alpha Products. Alpha was the genesis of what currently is IN ZONE. Alpha grew to become the largest manufacturer of promotional beverage ware in the country.”
Alpha was then sold to Aladdin Industries because of an internal stockholder issue, but Scott admits he got lucky on another front.
“The sale of that company was a blessing because what I’d already noticed were some trends going on in the housewares industry,” he says. “One of them was a lot of the businesses's manufacturing moving to Asia. In Asia, the tooling is much less expensive than it is here in America. Your up-front capital costs are less, which, in turn, shrunk the product lifecycles of everything in the industry.”
Scott turned that luck into a new business, and IN ZONE Brands was formed.
Smart Business spoke with Scott about how he turned cartoon-themed containers filled with juice into one of the top-selling noncarbonated beverages in the country and why he decided to stay as the company’s top exec.
What did you learn from your experiences at Alpha Products?
Alpha Products was a domestic manufacturer. What we (Richard Williams, his former business partner) did was go back and drafted a new business model called The Family Jewels. It was centered on owning and controlling intellectual property, speed to market, product development and owning and controlling the routes to market. It was a low-asset-intensive model.
There were some internal reasons why we sold Alpha. Honestly, I wish I could tell you I was a genius and I had seen a vision of the future of the industry coming. That wasn’t the reason; it was an internal stockholder reason that Alpha was sold. Richard and I discovered it was a blessing in disguise. That’s what stimulated the start of IN ZONE. We thought that we understood the future of the industry after already being in it and out of it. We could come back and create something that was much more nimble and capable of competing in today’s marketplace.
What advantage did that give you?
You see big companies in this field like Rubbermaid you can’t get out from under the bricks and mortar fast enough struggling. We were fortunate to have sold the bricks and mortar and start a new company with a clean slate.
Why did you start IN ZONE?
I needed to get out of the house. I’ve been an entrepreneur all my life. I started with $300. I’m a guy that’s never had a job.
Can you build IN ZONE past the entrepreneurial phase?
I’ve already reached the level and I’m still here. For me, it’s important to get up and enjoy what I’m doing every day. I’ll be honest. There are times when it just doesn’t work like that. I started with a great business model when I restarted IN ZONE in ‘97, and it worked for a couple of years. I told my wife I was going to have this small, nimble company that could grow rapidly with very little stress and overhead. That didn’t last. The small, nimble growth worked, but the company became large. It created its own set of issues.
We grew 100 percent a year for five years beginning in 1997. It created a huge amount of internal control problems.
How did you keep things moving?
We really had to buckle down. We had to redevelop our management to gain the accountability and controls to move the company to the next level.
I brought in a CEO in order to do two things. The business had burned me out. I had five years it was tough. And we needed a more disciplined management approach. I needed a break; the company needed more discipline and management.
But you came back.
I did feel refreshed. Any time an entrepreneur brings in a CEO, there’s trouble in paradise. It’s easier said than done. There are a lot of conflicts involved in it.
I’m committed now to going to the next level. I did not, when I first came in here, intend on taking the company as far as it’s already gone. But now I’m committed for several more years.
How can you make sure the company won’t run into similar problems again?
I live in fear every day of my life of failure. My biggest fears occur when things are going great. I’ve repeated this cycle so many times. You become what I am going to term bulletproof. When you think you’re bulletproof, you’d better watch out all hell’s fixing to break loose.
I’ve done the cycle three or four different times. We’ve had some runs where not only have we grown, we’ve made tremendous amounts of money. You tend to get lazy; you tend to rest on your laurels and you tend to lose focus and take your eyes off the ball. That’s when you’re going to get creamed. It’s happened so many times to me, I hope I’ve got the ability to see it coming and not rest and not kick back. It’s an issue. I can’t tell you that I’ve got it resolved because my track record says I haven’t.
The biggest secret to the whole thing on growth is getting the fog off the windshield. You’ve got to have the tools, and it’s really got to be a focus on information reporting. You’ve got to have your business analyzed correctly, and you’ve got to have accurate data to manage the growth.
When you can’t understand what the key drivers are of your success, you really can’t manage the growth. The fog got so thick on our windshield we didn’t know where we were going. We just knew we were going fast. We couldn’t tell which direction we were moving in.
What was the moment you knew the business was going to be a success?
We were at a Target store. I remember one of our initial first runs of the (Bellywashers) product I remember putting them up on shelves in a Target store and children just flocking to the thing. I knew we were on the right track.
It was such a phenomenal success; (with) that one item we re-established a sector of the beverage industry that we term interactive children’s beverages.
That one product, it went from zero to $37 million in revenue in 24 months. It was a huge, huge success.
How did your management of the company change with that rapid growth?
I stripped out the management, started over. It’s kind of sad, but it’s just the truth. A lot of people that can work in an entrepreneurial environment don’t work well in a mid-sized organization. And I’m an entrepreneur, so that’s a tough thing for me to say.
I had to get the right management team for two reasons. No. 1, to manage the company, and No. 2, to manage the interpersonal relationship between myself and the organization. As an entrepreneur, you are your company’s biggest asset. And you also can be your company’s worst enemy. Is the right team in place now?
I think I’ve got a management team that can buffer me and buffer the ideas and put them into a logical, orderly progression. That’s a key component if you’re going to have entrepreneurial leadership in the organization.
What did you look for in the new management team?
Discipline is a word that comes to mind. I was looking for people that were more seasoned. One thing you can’t afford in growth is for people to learn on the fly. They’ve got to come in ready to hit the ground running.
I’m really looking for people that are different from me. What this thing doesn’t need is a lot more creativity; what it needs is process and people that can work in a process-driven environment. One thing I’m very adamant about keeping in here is the entrepreneurial spirit, because, although I’m looking for people who are process-oriented, I’m also looking for someone who wants to be in this type of environment that can thrive making independent decisions. We do some crazy things that are a little off the norm here. Today I’m sitting here in Birkenstocks, shorts and a collared shirt, and I’m out cooking on a big (grill); I’m barbecuing ribs out in front of the building. We want to have fun. We’re very committed to having an environment where I see smiles on people’s faces.
What is the toughest challenge that you’ve faced in business?
One of them is managing the financing of your growth. In 23 years, 24 years of being an entrepreneur, there’s been two or three times, without a little luck in the ability to fund the growth, I could have gotten blown off the map. It’s something that you always are concerned about as an entrepreneur.
I walk around here a lot of times writing on the walls, “Cash is king” because it’s just as important to me as profitability. Cash flow can kill a high-growth company.
The toughest issue I ever faced as an entrepreneur was the departure of my business partner last year. Richard and I had been partners in four ventures just learning to operate without Richard. There were a lot of qualities that Richard was here for me for in the way of trust, in the way of discipline things of that nature. It was probably the toughest thing I faced in my business career. HOW TO REACH: IN ZONE Brands Inc., (877) 875-8443 or http://www.inzonebrands.com
So it seems fitting and pleasantly circular that Joe’s grandson, president and CEO of the Oberweis Franchise Systems and also named Joe, is in line to take the concept started by his grandfather national.
“A retail storefront really drives a brand a lot more than trucks driving around because people don’t really know what it is,” says the younger Oberweis. “When they see a storefront, they can go in and try it. That changes the brand pretty significantly.”
The company has signed agreements with franchisees to open stores as far west as Kansas City and as far east as Detroit, and plans to open 300 stores by the end of 2009. There are 35 company-owned stores around Chicago and in St. Louis, and there are agreements for Indianapolis, the Milwaukee area and additional stores in Chicago.
Smart Business spoke with Oberweis about how he plans to build the franchise business as carefully as employees craft a Cowabunga Cappuccino Moo-Cooler.
Why did the Oberweis Dairy create a franchising division?
The logic behind it was twofold. We believed that we had built the systems that could take our store concept beyond the regional Midwest to the national scene. There are different ways to grow a business, and we believe that franchising is the best for our business for a couple of reasons.
No. 1, it allows people who are investing in the brand they’re not actually investing in the Oberweis company by entering into an agreement with us. They’re also physically working in the store.
If you’ve got the money closer to the (franchisee), when they’re making a business decision, they’re making it with their own money. We believe that could be a substantial advantage to us.
What’s involved in opening a store once the deal is signed?
First, you’ve got to find a location. Then you’ve got to negotiate with the landlord and enter into a lease. Then you have to find a contractor; then you have to get your plans approved.
Then you’ve got to all the construction, all the pre-opening stuff, hire, train, find all the people, do your marketing and finally, open the doors. We’re look at nine months to one year from the time people sign to the time that they opened.
What risks did you identify before moving ahead with a franchising approach?
I wouldn’t necessarily say it was a risk. For us, it was a comfort level and that was, what happens to the brand? How do we make sure that we are maintaining the quality of the brand that we have built?
We felt that it came down to two things. No. 1 is setting the deal right and structuring the agreement protecting ourselves from a legal standpoint, and then (No. 2) building the relationship with the franchisees after they’re on board. It does mean that we have to be ready to enforce the agreement to protect ourselves and also to protect the other franchisees.
The reality is we want to take this agreement, put it on the shelf and let it collect dust. We don’t want this to be about the franchise agreement, but at the end of the day, if we have to resort to it, it’s there.
What has adding a franchise business done to the structure to Oberweis’ operations?
It really hasn’t changed it that much. At the end of the day, we are really maintaining a single operations channel so that our company-owned stores and franchise stores are going through the same process for opening for training. A company store manager is going to be going through training side-by-side with a franchisee.
How do you make sure franchisees follow the Oberweis philosophy?
Training, training, training. I’m exaggerating a little bit. It’s a combination of training and building relationships with them so that they understand why.
With a franchisee, the best thing we can do is to leverage their buy-in and provide them with training get them to understand our philosophy, get them to agree with it and buy into it, and then train them on how to live it. Those things together should give us a pretty good result.
How will you communicate with franchisees on an ongoing basis?
We will have a field operations manager that will be interacting with them. A field operations manager is going to basically be their primary point of contact. They’re going to be their mentor, their trainer, also play a little bit of the enforcer role as well make sure they are following system standards.
They’ll also have a marketing manager someone who will be there to help them build their sales plans and grow their sales, etc.
What do you look for in franchisees?
We’ve been extremely picky. The vast majority of people who’ve wanted to move forward in the process have been eliminated by us. We are eliminating about half the people (even) after the very last step.
We’re looking for raving fans, people who love our products, know that they are the best in the world, and take them to their area. We are looking for people who are excited to be in that environment.
It’s a different environment. It’s not working in an office. The last part of it is, there has to be some basic level of business experience or understanding.
How do you find those franchisees?
Word of mouth has been one of the biggest things. We’ve had a lot of response from articles that have been written about us. We’ve had a lot of people who are from the area they are transplants or they have family that lives in Chicago, and someone says, ‘You’ve go to try this place. It’s great.’ They inquire from that standpoint.
We’ve run a couple of seminars. We run a couple of ads in newspapers, and then people come in. Really, we’re looking for the former group the group who is really, really excited.
How will your management style change as the company adds franchises?
Certainly, as you go from 10 franchisees to 200, from an economic standpoint, you have to allocate this scarce resource of time. I’m going to be further removed from being able to know everybody personally, but it’s fully my intention to do everything I can do to maintain that connection, to know them all as well as I possibly can.
What has been the biggest surprise to this point?
I couldn’t say there were any unpleasant surprises. The pleasant surprises abound. We had terrific response from people. Maybe the fact that there haven’t been more surprises things have gone as we expected.
We’ve had a good number of people responding; we’ve done a really, really good job of getting ahead of the queue, building relationships, getting to know everybody.
What has been the biggest challenge to date?
The biggest challenge is what a friend of mine calls the organizational lag theory. That is, at any given point, someone who is a change agent is ahead of where (others are) in terms of interest and buy-in to a new idea, to a change in direction of the company.
It’s a fairly basic concept, but living it is something different. One of the biggest challenges has been trying to get everybody on the same sheet of music and let them really truly understand where the company is going.
HOW TO REACH: Oberweis Franchise Systems, (630) 801-6100 or www.oberweisdairy.com
Education: Bachelor of arts degree, management, University of Illinois; associate’s degree, information technology, Illinois Central College “So yes, at one time I was a geek, a bits and bytes guy.”
First job: My father was a service manager at a Pontiac garage, and he’d been there for like 25 years in that position. He was very well known in the region and across Pontiac as being a premier service manager. So dad, of course, being of German descent, wanted to give me all the rotten jobs; he had me come in after school.
He taught me how to change oil and told me you need to put your time in to advance. So, I got to do things like wash cars out on the lot in the middle of December, even though the water was freezing on the car. And he also gave me my first introduction to service parts there.
During the summers, I worked a lot in the shop and supporting the parts department of the dealership. And that’s really where I started to admire and desire a career in the area of service parts.
Career moves: I started at Caterpillar and had a 25-year career at Caterpillar. I started in IT. After about four years of that craziness, I then moved into a fast track in terms of skipping various management positions and learning all aspects of the service parts and parts logistics business. Caterpillar is world-renowned in terms of their ability to keep vehicles running on behalf of dealers and also their customers. If you think about an education in service parts, certainly Caterpillar would be known as the premier university. Part of those positions I held on that fast track was to understand remanufacturing and to support the development of the Caterpillar remanufacturing program.
Boards: I’ve been a member of church boards, which I’m active in. One board I’m particularly proud of, during my stay at Central Illinois while at Cat, I had 20 years’ experience with board experience with the Boys and Girls Club. I think that’s very important. Youth is our future, and that’s why I was very devoted to that club and driving forward the capabilities that that club offered to the boys and girls of Central Illinois.
What is the biggest business lesson you’ve learned?
One is get the right people in the right positions, and get smart people in those positions because they can help you deliver on the strategy. The second thing is develop a strategy in concert with those people and get their devotion to that strategy, and things will go well.
If you don’t have the right strategy and the buy-in, and then you don’t have the right people to execute it, you will fail.
What is the biggest business challenge you've ever faced, and how did you overcome it?
I would go back to Ford. I took over an organization that, over time, had not been nourished the way it is should have been nourished, and therefore, it was performing at a worst-in-class level. The challenge there was to get the people to believe that they could be best-in-class and putting the right people in place.
I got great support from Ford upper management to do that. How I overcame it was some reshuffling of people to get them in the right position; count on people with gray matter to really help you deliver the strategy. Develop a strategy that has them reach for the stars.
Whom do you admire most in business and why?
I don’t think I’m going to pick on business. I’m going to pick people that coached people, stayed in the background and gave the glory to the team.
If you think about a Vince Lombard or a Tom Landry of the Cowboys, Larry Brown with Detroit these are fairly lower profile people when they’re at their job, and they really concentrated on success of the team. I think that is the way you deliver success. That’s what I’d like to emulate.
The cliché is an old one. Do something you love, and you'll never work a day in your life. Republic Bancorp President and CEO Dana Cluckey wants to make sure his 1,200 employees never have to "work" again.
And he's well on his way.
Founded in 1985, Republic Bancorp was ranked the third-best company to work for by Fortune magazine in 2005, its fifth year on the "100 Best Companies to Work For" list. And it was named to Working Mother magazine's list of "100 Best Companies for Working Mothers" for the fourth year in a row.
"We strive every day to create that sort of a culture," says Cluckey, head of the third-largest bank holding company headquartered in Michigan. "When you're a service organization, you need to make sure that the people who are delivering that service feel good about the organization that they work for, that they take pride in what they do, and when they do that, they deliver a different kind of service -- a service that we say is distinctive personal service that exceeds expectations. That's what we're all about.
"So if we create that kind of environment, then we feel the customers will feel good about banking with our folks, and that grows the business."
Employee satisfaction is a mantra of sorts for Cluckey, and it's something he and his management team work to improve every year.
"We've done that in three major ways," Cluckey says. "All of our employees are owners. They all own stock; they all have options. Owners think differently. Every employee gets a share of stock per month for working here, and all of our 401(k) is matched in company stock. What that means is, instead of developing an us-and-them mentality, it's all us.
"The second one is what we call pay-for-performance philosophy. When people come here, they know what to expect, and people who are here know what to expect. And that simply means you will get paid here better if you're a top performer than you would somewhere else."
The final method for keeping employees happy is something everybody understands and responds to.
"Our objective is that our people know when they do well," he says. "We have immediate feedback; incentives are paid with every paycheck. We also have a year-end bonus program -- all of our employees on a year-end incentive plan."
The company not only rewards its employees, it reward their children as well by offering them scholarships.
"The only thing better than rewarding you is rewarding your children," Cluckey says. "All of our employees' children who graduate from high school and go on to a secondary education, we give them a scholarship, regardless of what their grade point was, regardless of what they're going into. We're not paying for somebody's entire education, but we think it's important that not only are we supportive of the employee, but we're supportive of the employee and the family."
Another way Republic supports the family is by offering paternity leave.
"It's a nice thing to be able to do and not be seen negatively in the organization because you wanted to take a couple of weeks off when your wife was home and you're having your first few days with the baby," Cluckey says. "People know when you care. You can't legislate that. You can decree it. You've got to have people in the organization that that is how they think."
Making the company a great place to work means more than just offering employees flex time. It takes time and effort to develop programs that work for the company and the employees.
"Every year, our human resources people brainstorm different ideas, whether it's benefits or opportunities or dealing with particular problems that we've seen in the past year, and they come up with new ideas," Cluckey says.
Because of cost considerations, the company may not be able to implement all the ideas at once, "but we try every year to add something new, something that people will feel good about and push that through the organization," Cluckey says.
And each year, Cluckey and his management team spend nearly three months developing incentive programs. The team discusses goals and objectives for the upcoming year, and every single one of Republic's 1,200 employees is told exactly what criteria the company and the individual must meet to earn the bonus.
"We have a year-end program whereby every employee of the organization, if we achieve our budget, will get a bonus or year-end incentive," Cluckey says. "For some folks, it's a fixed amount; for others, it's variable based on an incentive plan that we put in place at the beginning of the year."
And the company doesn't just set it and forget it.
"Once a month for the rest of the year, they have an accountability meeting with their manager," Cluckey says. "The first thing they talk about is how they're doing in comparison to their objectives for their year-end incentive plan."
The programs are tailored for each employee and each job description.
"If you're a branch manager, you'll get compensation based on the profitability of the branch," Cluckey says. "You'll get compensated on the increase in relationships with customers. You'll get compensated based on particular volumes of loans or deposits. You'll get compensated on turnover, regulatory compliance -- those kinds of things. Everybody knows at the beginning of the year how to get to their numbers at the end of the year. What that does is it pushes the management of the organization throughout the company versus having it only at the top.
"Tellers, for instance, have incentives they get for certain types of sales. And at the end of the year, if the company achieves budget, then they would also get a year-end incentive. That's the second leg of the stool. The third one is recognition and rewards."
The company was ranked No. 3 on this year's Fortune list, but the number isn't as important as the attitude the culture creates among employees, says Cluckey.
"We've created an organization where I think we're an employer of choice," Cluckey says. "We had a little over 200 job openings last year, and we had 22,000 applicants. People want to work here; we have low turnover levels. Turnover is the nemesis of good customer service. Our turnover levels are less than half of our peer group."
With those numbers, the company can cherry-pick the best candidates for its open positions.
"We take a lot of time in the hiring process," Cluckey says. "We probably spend more time than most organizations in hiring. That is because it is so important that when you bring people in here, they know what is expected of them, and we feel like we know what we're getting. To me, attitude is always the most important thing -- a positive attitude. You can teach and train quite a bit if people have the right attitude."
All new hires go through a rigorous training program where they learn the compensation and accountability processes. They also learn the company's vision and how it is delivered.
"When you're hiring, you only have a limited amount of time," Cluckey says. "Whether you're the employer or the potential employee, you make career decisions based on, in some instances in some companies, a 15-minute interview. We don't think that's a good idea. We have more people talk with you so that not only do we have the opportunity to access the potential employee, but they have the opportunity to meet a few more people in our organization and to access, is this the kind of company they'd like to work for?
"We don't want them to make a mistake. We don't want them leaving a place they like, coming to ours and making a mistake. It's just as important to them as it is to us."
It's important because Republic Bancorp doesn't look at workers as employees but as owners who are invested in the company and in customer relationships. Customer relationships are very important to the company, and that's one area Cluckey looks at other than the bottom line to measure success.
"We look at growth in customer relationships," Cluckey says. "We will look at th e amount of sales that individuals have. We'll look at the profitability of the branches. We'll look at quality of what's being done, both from a compliance standpoint, as well as the quality of the lending."
Cluckey leaves nothing to chance.
"We do branch shops, which means we have outside folks going into our branches (where) they will act like they are customers," he says. "We have certain standards that we've established. Did we stand up? Did we shake your hand? Did we ask you for your name? Did we introduce ourselves? Did we ask you if you wanted a cup of coffee? Did we make you feel at home?
"The next steps are, did we find out what you were looking for? Did we ask you about how we could help you? Afterwards, did we follow up? Did we make a call? Did we send you a letter -- all of those kinds of things.
"Those are all evaluated and our branches are evaluated based on those branch shops. Those are extremely important; people want to do well. They want to get 100 percent."
The ranking by national magazines as a best place to work is nice for press releases, and it certainly helps in recruiting, but the good feeling it creates must flow through employees to the company's customers.
"I don't know that it's as important to be named in the list as it is to strive to continually be a great place to work because people feel good then about where they work, and then they can deliver good service to the community," he says.
As CEO, Cluckey is the focal point for customer praise and complaints. He hears the good and the bad, and he shares it with every employee.
"We get letters all the time, and I read them in (a companywide conference call) of people who are so satisfied," Cluckey says. "It's not perfect, but we get a ton of these letters."
He recently shared the story of a customer who had passed away. When the woman's daughter went through her mother's belongings, she came across a scrapbook with pictures and articles clipped from the newspaper.
"This daughter opened up this book and there is a picture of one of our personal bankers from a newspaper article in there," Cluckey recounts. "Underneath it, this woman had put, 'My personal banker.' Clearly we had made a difference, and ultimately, that is what you're trying to do."
Cluckey says the company gets more positive letters than negative, which he says is rather unusual. People often take the time to complain, but less often take the time to praise.
"You still do get negative letters periodically that you need to deal with," he says. "And by the way, sometimes that's just a wonderful opportunity to take a lemon and turn it into lemonade. You need to respond quickly, and you need to be sincere. When people understand the issue -- if you made a mistake, you made a mistake -- if it's something you can change and it makes sense, you tell them you're going to change it."
Change is something Cluckey looks at constantly. How to change Republic Bancorp, to make it a better place for employees and for customers, is something he constantly works on. And one day the company may reach No. 1 on the list of best places to work.
But for Cluckey, that will likely only serve as incentive to do even better.
HOW TO REACH: Republic Bank (888) 722-7377 or www.republicbancorp.com
For more than 30 years, Monica Teplis has helped people get from one place to another. And while that concept hasn't changed, the company and the way it conducts business are light years away from the small agency she and her late husband opened in 1972 to plan travel for groups.
Teplis, president and owner of the $85 million Teplis Travel Service, kept getting the same question from early clients -- do you do corporate travel?
"The answer was no at that time," says Teplis, a native of England who came to the United States in 1968. "But we looked at it and opened an office to service the people that were in our groups. That's how Teplis started."
That move cemented the company's future. Teplis Travel continued to grow, and in 1996, opened a second office, its West Coast reservation center in Las Vegas. The company opened a third office last year in London.
With proprietary software, Teplis serves clients around the world by offering more than just reservations. It's about service from experienced travel agents who serve clients with years of know-how. The company works with clients to manage their travel budgets; many clients lack a clear picture of the amount of travel done in their companies, and Teplis helps track and manage those services.
Those decades of experience helped the company survive one of the most turbulent times in the travel industry, one that still has airlines reeling. Nearly four years after the terrorist attacks of Sept. 11, 2001, passenger traffic has yet to reach pre-Sept. 11 levels, Teplis says.
Smart Business spoke with Teplis about how she created one of the state's largest corporate travel companies -- and one of the Top 100 in the country -- how she continues to produce 15 percent growth ratio each year and the lessons learned following Sept. 11.
What factors do you think contribute to the success of your company?
The quality of service that we give, and not just going out and soliciting an account and running on to the next account. It's also servicing the account and being on top of technology (that enables) you to go and cut their costs.
How has the company's growth changed how you manage the business?
I've added to my management team. As you grow, you have to add. At one time, we would promote from within as far as having managers. Today we find we've gone out into the marketplace for managers. Part of our success and growth is the longevity of the people that work for me. I have people that have been with me for 22 years, 20 years, 15 years.
What qualities do you look for when you hire?
We're looking for people with strong customer service skills. They have to have been in the industry; I wouldn't hire anybody who hasn't been in the industry. It's experience, the customer service ability.
If they don't have the customer experience, then they're not going to be a good fit for Teplis. When we're looking for managers, as we grow, they grow with us -- you don't have to reach out as you're growing and find somebody else.
What is the greatest challenge you've ever faced?
September 11. I don't think any of us knew the devastation it was going to cause to our businesses. The first thing we did was a roll call to make sure we didn't have anybody on those planes. Thank goodness we didn't.
What we did for our clients -- we stayed open. We got the reports to our clients letting them know where everybody was. We did so many things. We run a lean ship now; we had to go even leaner at that time.
(We) had enough in the bank, (so when we) hit a September 11, you can stay in business. Fortunately, we've always been a company that has been financially strong. If we hadn't been, we wouldn't be here today.
What long-term effects did Sept. 11 and the ensuing airline troubles have on your business?
After September 11, everybody took a stance. There was basically no growth. It's not back to where it was, but it's getting back. As far as Delta having problems, it really hasn't affected our business.
I think they know if Delta files Chapter 11, they're still going to be around. Maybe with some of the smaller airlines, that could be a problem. When you're talking about an American, a Delta, a United, you know they're going to be there.
People are just more aware when they travel today. I don't think travel will ever (again) be where people just hop on a plane and don't think anything about it. With everything one has to go through at the airport, it does make people think.
What can you do to minimize the impact of fewer travelers on your operation?
You just have to run a tight and lean ship. (Post 9/11) we tried not to do layoffs. During that time - that first year - we had people go to four days a week. It was an understanding between everybody that we were saving a job for their peers to prevent a layoff.
We didn't have a lot of the dot-com companies (as clients). If we'd had a lot of the dot-coms, then yes, we would have had to cut a lot of people because those were the (companies) that went out of business.
How would you describe your leadership style?
One thing is an open door policy. Anybody, at any time (is welcome). Everybody is responsible for their areas. People that are hired are very capable. By having the right people, they run the ship. I don't micromanage.
Everybody understands what their role is. Customer service (representatives) understand their role. VP of operations understands his role. Accounting (workers) know what their roles are. Everybody knows.
How has technology changed the way you do business?
We're up against your Expedias and your Orbitz. People have the concept that if they're going to Expedia and Orbitz, they're getting cheaper prices. That's not so. In fact, something just came out from Topaz that said (people) using a travel agency (find) tickets $80 cheaper.
Companies are more aware. They want to know where their travelers are. We're able to pull that up in no time. If a catastrophe were to happen, we could have the information to the company most probably within a couple of hours or less.
What do you provide that benefits your customers more than the array of online offerings?
We're going to look at a client's volume. We're going to bring the cost vendors to the table; we're going to bring the airlines to the table. We're going to bring the hotel vendors to the table.
Sometimes companies aren't aware of the amount of travel that they're doing. When you go online, they're looking at today's ticket, not tomorrow's ticket.
Good communication. Being proactive. Keeping costs down for a company. Making sure you're following their travel policy.
What metrics do you use to judge the success of your business?
Longevity of clients. If you look at our agents, a lot of my agents have at least 15 years' experience. The only time we lose an agent is when their second child comes, they usually stay home.
What we have done to keep some really good agents, we've set them up at home. With DSL lines and everything, people don't know where they're calling. You can only do that with someone who has self-discipline.
Why did you open a second office in Las Vegas?
Time change. Looking at the growth Las Vegas was having, we have a lot of nationwide accounts, and we needed that three-hour time change.
Will your primary growth come organically, with new customers or through acquisition?
It will be clients growing with us and also bringing in new business. If a small agency came along, I'd be very interested. Our growth (to date) has been strictly from bringing in business and keeping the business.
It was the dot-com companies that changed the industry because they didn't care at that point what they paid for a ticket. The kinds of customers that we go after and we keep, they really care about what they're spending.
We have a telemarketing area that does some cold calling, reading up on companies moving into town or even out-of-town companies, and looking at the size. Whomever we go and get, it has to be a good fit for our company. There's no point going out and bringing in a $30 million account. We're not going after an IBM.
How do you differentiate your organization from others?
We all have the same tools. Keeping the clients that we have by giving good service. In our sales presentations, hopefully doing a really good job to win the account and giving good customer service.
And listening to your clients -- like we tell our agents, don't be order-takers. If they can leave an hour earlier, tell them, and you can save $100.
We have ongoing training. You have to stay educated all the time. You can't go to sleep on what you have today.
HOW TO REACH: Teplis Travel Service, (404) 252-6696 or www.teplis.com